Trump Likely to Choose Powell and Taylor for Top Fed Roles

President Donald Trump is leaning toward appointing both Standford University economist John Taylor and former investment Jerome “Jay” Powell to top positions at the Federal Reserve, according to people familiar with the president’s thinking.

The president has two top positions to fill at the Fed; the Fed chairmanship currently held by Janet Yellen and a vice-chairmanship held by Stanley Fischer. The president has not yet decided which of the two front-runners will get which job, the sources said.

Trump recently met with Yellen to discuss the possibility of re-nominating her as chair. The following day, Yellen had lunch with White House economic adviser Gary Cohn, formerly a front-runner for the chair himself but now largely considered out of the running.

Trump was critical of Yellen during the campaign but has recently praised her work at the Federal Reserve. This praise has led people close to the president to expect that the president will name Powell as chair because Powell has been a supporter of Yellen’s cautious approach to raising rates. Trump has said he favors low interest rates and lower rates are considered by most economists to be supportive of faster economic growth, a major goal of the Trump administration.

In an interview with Fox Business Network’s Lou Dobbs, the president indicated that he would like to appoint someone new to run the Fed. “You’d like to make your own mark,” he said.

Taylor is widely considered a conservative and a hawk on fighting inflation, which implies a willingness to raise rates more readily than the current Fed leadership. He is one of the foremost authorities on monetary policy outside of the central bank. He has been critical of Yellen for risking losing control of inflation with her efforts to stimulate the economy.

Taylor was a critic of the Fed’s unconventional monetary policy in the wake of the crisis, saying the quantitative easing bond buying program had been ineffective and perhaps counter-productive.

“Economic growth came in consistently below what the Fed forecast and much weaker than in earlier recoveries from deep recessions,” Taylor wrote Wall Street Journal op-ed in December 2016. “Such policies discourage lending by squeezing margins, widen disparities in income distribution, adversely affect savers and increase the volatility of the dollar.”

Taylor is the author of the Taylor rule, which is a formula that he proposed in 1993 for predicting the Fed’s monetary policy target. While it was originally presented as a forecasting model, it is also considered to be a proposal of what the Fed should do, a mechanistic set of rules based on inflation and growth expectations.

There is division within the administration over the pick. Vice President Mike Pence is said to favor Taylor while Treasury Secretary Steven Mnuchin favors Powell.

Powell is a favorite on Wall Street because he is seen as providing continuity with current policy, while Taylor is seen as more disruptive.

Earlier Thursday, the Washington Postreported that Trump had largely settled on appointing either Powell or Taylor.